I had proposed a thesis that the persistent divergence between these rates of compensation is permitted by FED's interference at the margin in the cost of money.
This might be a bit tedious but I'm trying to get the whole picture. Make it more "intuitive" for me - have the thesis come out of description.
As per your previous posts, if I understand them correctly, marginal interference compounds the basic rate of inflation (eg) inflation of x% + (y% of inflation of x%) and as this goes on over time inflation accelerates as banks create extra money loaning a bit more because they have some last, extra amount of low cost funds. And they will loan it out even though (because?) they don't really know if the rate they charge would be nearby that of an untampered market.
Am I right in believing this is not quite symetrical? Central bank interference at margin by raising rates does not reduce the amount of previously created money but reduces loan making and business activity, eventually terminating marginal businesses and imprudent investments? Inflation will then subside as productivity increases use up extra money and central bank makes money centers buy its paper? If the central bank has a lucky stroke? <g>
Three Examples:
1. The basic rate of inflation is caused by money created at a rate in excess of that of the rate of increase in productivity. I should think it reasonable to assume at this point marginal workers look for work keeping them even with inflation, and average workers sue for raises keeping them even with inflation . Is this assumption correct? Intuitvely it seems so and rhetoric I hear from unions and others might confirm this. Wage Settlements for part of the nineties were relatively quite small and inflation fairly minimal and marginal workers either few or not costly..
2. In the early 1980s where I live, business conditions were poor (nominal interest rates 12%+, etc) and average workers elected wage roll backs and marginal workers were laid off. This is the corrollary of your thesis, I think: the average worker underbid the price of marginal worker's output.
3. Sometimes it's tricky to figure out:
For the last few months I and a friend have been discussing certain events in BC. One which we found interesting was hospital nurses labour dispute. It was bitter and concerned both wages and working conditions, as they saw it. As we saw it, it made no never mind: the two were the same. Their beefs were these: they hadn't had a decent raise in years and had fallen behind nurses in other provinces and the US; they were being overworked to exhaustion (especially full timers), hospital admins were hiring part time nurses whenever possible, (part timers cost just as much or more than full timers) and, over time it was said, the admins were trying to make the whole workforce part time. All true. Furthermore whenever these nurses turned around there was some recruiter from a US hospital offering them twice the pay and conditions. True again. The employer had ducked any kind of settlement for years. True, also.
Hospital administrators said they had no money to pay these folk. True, as well. However, we asked why didn't they have the money? The hospitals ultimately, are run by the government, and furthermere, for most of the period of the dispute, run by a socialist government. They should be able to find the bucks for caretaking, doing-good folk like nurses, shouldn't they? No. Not at all. Because they had found the money instead for their friends in the janitors' and anxillary workers' union. Which also happens to be a much bigger union very close ($$) to that government's (I'm happy to say close to dead), socialist party. Nurses were getting ~$30/hr janitors, etc getting ~$20/hr.
Of course, the nurses went on strike just as the vile socialists were destroyed and the new, business oriented government had to inherit the mess, legislate them back to work, impose a settlement with some fairly good pay increases out a year or two, when, the government prays, its fiscal reforms actually generate some increased revenue to pay for it all. Other aspects the parties have to resolve by sundown, which is early next year, I think.
The marginal workers in this case were neither class of nurse, but the janitors, etc. and the nurses were suing for a wage higher than the price of the output of two or three of them.
I'm quite sure that over the next year or two nearly all hospital anxillary sevices will be contracted out and janitors will no longer be getting ~$20/hr. |
